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Spain’s Finance Ministry forecasts record tax collection in 2017

Government expected to further extend 2016 budget throughout rest of year

Spain’s Finance Ministry says a combination of economic growth, inflation, and changes to corporate tax law will boost public revenue to a record high this year. The ministry says that it expects to collect €202.6 billion in 2017, up 7.8% on the previous year, and the biggest increase since 2010. The government has extended the 2016 budget and although this year’s is ready, it may wait until next year to present it before Congress.

Finance Minister Cristóbal Montoro.
Finance Minister Cristóbal Montoro. EFE

Taxes will provide at least €14.6 billion more revenue to the public coffers this year, according to Finance Ministry estimates outlined in a report on the Spanish economy.

The report also reveals that the Spanish government may have under-estimated growth. Finance Minister Cristóbal Montoro predicts that nominal growth (GDP and inflation) will be around 4% for this year, but if inflation remains at similar levels to those of January 2016, when it grew by 3%, then tax revenue could increase. Price rises feed tax collection: when the cost of goods and services increase, the base that VAT, or sales tax, is applied, broadens, which is why the government expects revenue from VAT to increase by 9.3%. Inflation is often dubbed by experts as a tax on the poor, because it also eats away at purchasing power. The Finance Ministry’s figures indicate that sales tax will reach €68.2 billion by the end of this year and will set a new high for the fourth year running.

Income tax revenue is set to increase by 7.5%, reaching a new record of €78.1 billion

The expected increase in tax revenue for 2017 coincides with the decision to extend last year’s budget. As a result of two inconclusive elections in 2016, the ruling Popular Party of Prime Minister Mariano Rajoy was unable to form a government until October. Leading a minority administration and with the opposition Socialist Party in disarray, Rajoy has so far decided to postpone putting his budget before Congress, and thus proposing any stimulus measures for the economy. The sharp increase in public revenue combined with a freeze on public spending due to the extension of the budget will soak up a large part of the cuts that Brussels is demanding to reduce the deficit. Spain will have to reduce the budget deficit from 4.6% of GDP to 3.1% this year, equivalent to spending cuts of some €16 billion.

Increased tax revenue for 2017 coincides with the decision to extend last year’s budget

Public investment will remain at historic lows over the coming months. The Finance Ministry calculates that it will be around €24.2 billion, equivalent to 2.1% of GDP. Current expenditure, which traditionally drives the economy, will grow by a few millions, but well below GDP growth, which in relative terms will represent a smaller slice of the public-spending cake. Nothing has been said about civil servants’ wages, while pensions will increase by just 0.25%.

Income tax revenue is set to increase by 7.5%, reaching a new record of €78.1 billion. Improvements in the labor market, albeit at the expense of low wages, will also help boost the state’s coffers. Revenue from corporate tax will increase by 7.8%, driven mainly by new changes to the law limiting deductions. The Finance Ministry estimates that this will raise €22 billion by the end of the year, half the amount of the maximum registered a decade ago, on the eve of the crisis.

English version by Nick Lyne.

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